Limited Liability Corporation (LLC)

Question 1

What are the Pros of a forming an LLC?

Answer 1

• • Removes a lot of the formalities of a partnership
• • Varying methods of management and ownership rights
• • Perpetual existence that doesn’t dissolve when owners die
• • Limited liability
• • Financial structure is very flexible
• • Can have statutory dissolution, if unreasonably practicable to carry on the business
• • Fiduciary duties can be eliminated
• • Can choose to be taxed as a corporation or a partnership

Question 2

What are the Cons of forming an LLC?

Answer 2

• • New form of business that has different rules in different jurisdictions
• • May be subject to increased tax burdens in some jurisdictions
• • Can pierce for liability (easier?)
• • Fiduciary duties owed to members
• • Pass through taxation?

Question 3

What are the different forms of Management of an LLC?

Answer 3

Any form of management is permitted:
Member-Managed–more like partnership than corporate manager managed
Manager-Managed–manager may be a member or someone else, but a duty to the members

Question 4

How do you pierce the LLC veil?

Answer 4

Treated the same as corporations when it comes to liability; if members and officers fail to treat the LLC as a separate corporate entity, by converging personal interest and corporate interest, AND allowing continued shield from liability would promote fraud or injustice (e.g. unjust enrichment), then members are personally liable.
– By nature LLCs are more flexible and without the same corporate formalities: THIS WILL AFFECT THE ANALYSIS

Question 5

What are the fiduciary obligations in an LLC?

Answer 5

BY DEFAULT, according to DE Law, like a partnership, members of the LLC owe one another the duty of utmost trust and loyalty.

Question 6

How can an LLC operating agreement affect the fiduciary duties owed in an LLC?

Answer 6

Fiduciary duties within an LLC can be removed through the LLC operating agreements, and parties may contractually agree that no Fiduciary Obligation exists.
– HOWEVER, this does not eliminate Good Faith and Fair Dealing.

Question 7

Can LLC’s produce opportunity claims?

Answer 7

Similar to partnerships, LLCs can involve stealing corporate opportunities if one party keeps or takes an opportunity from the other members.

Question 8

What are Member’s Inspection Rights?

Answer 8

Members of the LLC can have access to documents that are “reasonably related to the member’s interest as a member of the limited liability company.